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®: CRE Regulatory Action of the Week

EPA Moves Forward With Greenhouse Gas Regulations
On Friday, December 10, 2010, the U.S. Circuit Court of Appeals for the District of Columbia rejected a challenge to federal climate regulation. Industry and the state of Texas challenged the EPA's regulations on greenhouse gases, arguing that the rules will tie up the permitting process, which will prevent companies from starting construction on power plants, refineries, and factories.

The industry groups and Texas tried to block implementation of the regulations arguing that the EPA did not conduct enough research in finding that carbon dioxide is dangerous to human health and that enforcement will be too costly. The D.C. Circuit Court held that the EPA's climate regulations can be enforced while the lawsuit is pending. The appeals court held, "Petitioners have not satisfied the stringent standards required for a stay pending court review…[and] have not shown that the harms they allege are 'certain' rather than speculative."

EPA regulations limiting the emissions of greenhouse gases, including carbon dioxide, from major industrial sources are due to go into effect on January 2, 2011. The Obama administration is moving ahead with the rules after climate change legislation stalled in the Senate last year. Beginning in January, EPA will begin requiring large greenhouse gas emitters such as power plants, refineries and cement manufacturers to obtain permits for polluting greenhouse gases. Emitters will also have to adhere to EPA guideline for "best available control technologies" to restrict emissions of carbon dioxide when expanding or building new facilities.

Utilities argue that EPA regulations may bring a halt to industrial and power plant construction projects in 2011. Due to uncertainty whether regulators will be ready to issue permits in three weeks, an industry lobbyist commented, "the court may have ensured an effective construction moratorium for industrial and power projects."

Investment Bank, FBR Capital Markets, has concluded that the EPA regulations could end up costing the industry over $80 billion and force the retirement of 70,000 megawatts of coal-fired power plants. Paradoxically, regulated utilities will profit an additional 2 to 3 percent from the EPA regulations when the companies pass these costs, along with a state-approved percentage return on capital investments, onto customers.